EX-4.D 5 xllyonsex4d.txt PURCHASE AGREEMENT XL Capital Ltd Liquid Yield Option TM Notes due 2021 (Zero Coupon--Senior) Purchase Agreement September 4, 2001 MERRILL LYNCH & CO. Merrill Lynch, Pierce, Fenner & Smith Incorporated North Tower World Financial Center New York, New York 10281 Ladies and Gentlemen: XL Capital Ltd, a Cayman Islands exempted limited company (the "Company"), proposes, subject to the terms and conditions stated herein, to issue and sell to Merrill Lynch, Pierce, Fenner & Smith Incorporated (the "Purchaser" or "Merrill Lynch") an aggregate of $ 442,471,000 principal amount at maturity (subject to adjustment for contingent additional principal, if any) of the Liquid Yield Option TM Notes due 2021 (the "LYONs"), convertible into Class A Ordinary Shares, par value $0.01 per share (the "Shares" and, together with the LYONs, the "Firm Securities") of the Company, specified above and, at the election of the Purchaser, up to an aggregate of $ 66,371,000 additional aggregate principal amount at maturity (subject to adjustment for contingent additional principal, if any) of the LYONs (the "Optional Securities"). The Firm Securities and the Optional Securities which the Purchaser elects to purchase pursuant to Section 2 hereof are herein collectively called the "Securities". The Securities have the benefit of a registration rights agreement (the "Registration Rights Agreement"), to be dated as of September 7, 2001, between the Company and the Purchaser, pursuant to which the Company has agreed to register the Securities under the Securities Act of 1933, as amended (the"Act") subject to the terms and conditions therein specified. 1. The Company represents and warrants to, and agrees with the Purchaser that: (a) An offering memorandum, dated September 4, 2001 (the "Offering Memorandum"), has been prepared in connection with the offering of the Securities and the Shares issuable upon conversion thereof. Any reference to the Offering Memorandum shall be deemed to refer to and include the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2000, Quarterly Report on Form 10-Q for the quarters ended March 31 and June 30, 2001 and Current Reports on Form 8-K dated February 23, 2001, May 17, 2001, May 18, 2001 and July 25, 2001 which are incorporated by reference into the Offering Memorandum, and all subsequent documents filed with the United States Securities and Exchange Commission (the "Commission") pursuant to Section 13(a), 13(c) or 15(d) of the United States Securities Exchange Act of 1934, as amended (the "Exchange Act"), on or prior to the date of the Offering Memorandum and any reference to the Offering Memorandum as amended or supplemented, as of any specified date, shall be deemed to include (i) any documents filed with the Commission pursuant to Section 13(a), 13(c) or 15(d) of the Exchange Act after the date of the Offering Memorandum, and prior to such specified date and (ii) any Additional Issuer Information (as defined in Section 5(f)) furnished by the Company prior to the completion of the distribution of the Securities; and all documents filed under the Exchange Act and so deemed to be included in the Offering Memorandum, as the case may be, or any amendment or supplement thereto are hereinafter called the "Exchange Act Reports." The Exchange Act Reports, when they were or are filed with the Commission, conformed or will conform in all material respects to the applicable requirements of the Exchange Act and the applicable rules and regulations of the Commission thereunder. The Offering Memorandum and any amendments or supplements thereto and the Exchange Act Reports did not and will not, as of their respective dates, contain an untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading; provided, however, that this representation and warranty shall not apply to any statements or omissions made in reliance upon and in conformity with information furnished in writing to the Company by Merrill Lynch expressly for use therein; (b) Holders (including subsequent transferees) of the Securities will have the registration rights pursuant to the Registration Rights Agreement, substantially as described in the Offering Memorandum and containing other customary and reasonable provisions. Pursuant to the Registration Rights Agreement, the Company will agree to file with the Commission, under the circumstances set forth therein, a shelf registration statement pursuant to Rule 415 under the Act (the "Shelf Registration Statement") relating to the resale by certain holders of the Securities and use its reasonable best efforts to cause such Shelf Registration Statement to be declared and remain effective and usable for the periods specified in the Registration Rights Agreement; (c) Neither the Company nor any of its Significant Subsidiaries (as defined below) has sustained since the date of the latest audited financial statements included in the Offering Memorandum any loss or interference with its business from fire, explosion, flood or other calamity, whether or not covered by insurance, or from any labor dispute or court or governmental action, order or decree, otherwise than as set forth or contemplated in the Offering Memorandum, which loss or interference would have a Material Adverse Effect (as defined below), or would reasonably be expected to have a prospective Mate- 2 rial Adverse Effect; and, since the respective dates as of which information is given in the Offering Memorandum, there has not been any change in the capital stock (other than changes resulting from the exercise of stock options or the conversions of warrants or capital stock which were outstanding as of such date, or from the exercise of options granted after such date in the ordinary course of business or from repurchases of capital stock) or long-term debt of the Company or any of its Significant Subsidiaries or any material adverse change, or any development that would reasonably be expected to involve a prospective material adverse change, in or affecting the general affairs, management, financial position, stockholders' equity or results of operations of the Company and its Significant Subsidiaries, taken as a whole, otherwise than as set forth or contemplated in the Offering Memorandum; (d) The Company has been duly incorporated and is validly existing as an exempted limited company in good standing under the laws of the Cayman Islands, with power and authority to own its properties and conduct its business as described in the Offering Memorandum, and has been duly qualified as a foreign company for the transaction of business and is in good standing under the laws of each other jurisdiction in which it owns or leases properties or conducts any business so as to require such qualification, except where such failure to be so qualified in any such jurisdiction or to have any such power or authority would not have a material adverse effect on the current or future condition (financial or other), business, properties or results of operations of the Company and its Subsidiaries taken as a whole (a "Material Adverse Effect"); and each Significant Subsidiary of the Company has been duly incorporated and is validly existing as a corporation in good standing under the laws of its jurisdiction of incorporation; (e) All of the issued share capital of the Company have been duly and validly authorized and issued and are fully paid and non_assessable; the Shares initially issuable upon conversion of the Securities have been duly and validly authorized and reserved for issuance and, when issued and delivered in accordance with the provisions of the LYONs and the Indenture referred to below, will be duly and validly issued, fully paid and non_assessable and will conform to the description of the Shares contained in the Offering Memorandum; and all of the issued share capital of each Significant Subsidiary of the Company which is a corporation have been duly and validly authorized and issued, are fully paid and non_assessable and (except for directors' qualifying shares) are owned directly or indirectly by the Company, free and clear of all liens, encumbrances, equities or claims (for purposes of this agreement, "Subsidiary" means, as applied to any person, any corporation, limited or general partnership, trust, association or other business entity of which an aggregate of greater than 50% of the outstanding Voting Shares of such person is, at any time, directly or indirectly, owned by such person and/or one or more subsidiaries of such person and "Significant Subsidiary" shall mean any Subsidiary of the Company constituting a "significant subsidiary" within the meaning of Regulation S-X under the Act; for purposes of the definition of " Subsidiary," "Voting Shares" means, with respect to any corporation, the capital stock having the general voting power under ordinary 3 circumstances to elect at least a majority of the board of directors (irrespective of whether or not at the time stock of any other class or classes shall have or might have voting power by reason of the happening of any contingency)); (f) The Securities have been duly authorized and, when issued and delivered pursuant to this Agreement, and when authenticated by the Trustee (as defined below), will have been duly executed, authenticated, issued and delivered and will constitute valid and legally binding obligations of the Company entitled to the benefits provided by the indenture to be dated as of September 7, 2001 (the "Indenture") between the Company and State Street Bank and Trust Company, as Trustee (the "Trustee"), under which they are to be issued; the Indenture has been duly authorized and, when executed and delivered by the Company and the Trustee, the Indenture will constitute a valid and legally binding instrument, enforceable in accordance with its terms, subject, as to enforcement, to (i) bankruptcy, insolvency, reorganization, conveyance and other similar laws now or hereafter in effect relating to or affecting creditors' rights or remedies generally and to general equity principles and to the discretion of the court before which any proceedings therefor may be brought (regardless of whether enforcement is sought in a proceeding at law or in equity) and (ii) the enforceability of provisions imposing liquidated damages, penalties or an increase in interest rate upon the occurrence of certain events may be limited in certain circumstances; and the Securities and the Indenture will conform to the descriptions thereof in the Offering Memorandum; (g) This Agreement has been duly authorized, executed and delivered by the Company; (h) The Registration Rights Agreement has been duly authorized and, when executed and delivered by the Company and the Purchaser, will have been duly executed and delivered, and the Registration Rights Agreement will conform to the description thereof in the Offering Memorandum; (i) None of the transactions contemplated to be performed by the Company by this Agreement (including, without limitation, the use by the Company of the proceeds from the sale of the Securities) will violate or result in a violation of Section 7 of the Exchange Act, or any regulation promulgated thereunder, including, without limitation, Regulations T, U, and X of the Board of Governors of the Federal Reserve System; (j) Prior to the date hereof, neither the Company nor, to the Company's knowledge, any of its affiliates has taken any action which is designed to or which has constituted or which might have been expected to cause or result in stabilization or manipulation of the price of any security of the Company in connection with the offering of the Securities in violation of the Exchange Act; 4 (k) The issue and sale by the Company of the Securities, the execution and delivery of the Indenture and the Registration Rights Agreement and the compliance by the Company with all of the provisions of the Securities, the Indenture, the Registration Rights Agreement and this Agreement and the consummation of the transactions herein and therein required to be performed by the Company will not conflict with or result in a breach or violation of any of the terms or provisions of, or constitute a default under, any indenture, mortgage, deed of trust, loan agreement or other agreement or instrument to which the Company or any of its Significant Subsidiaries is a party or by which the Company or any of its Significant Subsidiaries is bound or to which any of the property or assets of the Company or any of its Significant Subsidiaries is subject, nor will such action result in any violation of the provisions of the Articles of Association or By-laws of the Company or any statute or any order, rule or regulation of any court or governmental agency or body ("Governmental Agency") having jurisdiction over the Company or any of its Significant Subsidiaries or any of their properties, except in each case (other than with respect to such Articles of Association or Bye-laws) for such conflicts, violations, breaches or defaults which would not result in a Material Adverse Effect; (l) No consent, approval, authorization, order, registration or qualification of or with any such Governmental Agency (a "Governmental Authorization") is required for the issue and sale by the Company of the Securities pursuant to this Agreement or the consummation by the Company of the transactions contemplated by this Agreement, the Registration Rights Agreement or the Indenture to be performed by the Company, except for registration of the Securities under the federal securities laws, and except such consents, approvals, authorizations, registrations or qualifications as may be required under state securities or Blue Sky laws and the laws of the Cayman Islands in connection with the purchase and distribution of the Securities by the Purchaser; (m) The statements set forth in the Offering Memorandum under the caption "Description of LYONs" and "Description of Ordinary Shares", insofar as they purport to constitute a summary of the terms of the Securities and the Shares, insofar as they purport to describe the provisions of the documents referred to therein, fairly summarize such documents in all material respects; (n) Other than as set forth or incorporated by reference in the Offering Memorandum, or as encountered in the ordinary course of business in the Company's claims activities, there are no actions, suits or proceedings pending or, to the knowledge of the Company, threatened against or affecting the Company or any of its Significant Subsidiaries or any property of the Company or any of its Significant Subsidiaries in any court or before any arbitrator of any kind or before any governmental authority that, individually or in the aggregate, would reasonably be expected to have a Material Adverse Effect; 5 (o) The financial statements of the Company incorporated by reference in the Offering Memorandum present fairly the financial position of the Company and its consolidated Subsidiaries as of the dates shown and their results of operations and cash flows for the periods shown, and except as otherwise disclosed in the Offering Memorandum, such financial statements have been prepared in conformity with the generally accepted accounting principles in the United States applied on a consistent basis; (p) The Company and its Significant Subsidiaries possess adequate certificates, authorities or permits issued by appropriate governmental agencies or bodies necessary to conduct the business now operated by them and have not received any written notice of proceedings relating to the revocation or modification of any such certificate, authority or permit that would, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect; (q) When the Securities are issued and delivered pursuant to this Agreement, the Securities will not be of the same class (within the meaning of Rule 144A under the Act) as securities which are listed on a national securities exchange registered under Section 6 of the Exchange Act or quoted in a U.S. automated inter-dealer quotation system; (r) The Company is subject to Section 13 or 15(d) of the Exchange Act; (s) The Company is not, and after giving effect to the offering and sale of the Securities, will not be an "investment company", as such term is defined in the United States Investment Company Act of 1940, as amended (the "Investment Company Act"); (t) Neither the Company nor any person acting on its behalf has offered or sold the Securities by means of any general solicitation or general advertising within the meaning of Rule 502(c) under the Act; provided, that the Company makes no representation as to the Purchaser and its affiliates; (u) Except for the Company's offering of its Zero Coupon Debentures due May 2031, within the preceding six months, neither the Company nor any other person acting on behalf of the Company has offered or sold to any person any Securities, or any securities of the same or a similar class as the Securities, other than Securities offered or sold to the Purchaser hereunder; provided, that the Company makes no representation as to the Purchaser and its affiliates. The Company will take reasonable precautions designed to insure that any offer or sale, direct or indirect, in the United States of any Securities or any substantially similar security issued by the Company, within six months subsequent to the date on which the distribution of the Securities has been completed (as notified to the Company by Merrill Lynch), is made under restrictions and other circumstances reasonably designed not to affect the status of the offer and sale of the Securities 6 in the United States and to U.S. persons contemplated by this Agreement as transactions exempt from the registration provisions of the Securities Act; (v) PricewaterhouseCoopers LLP, the Company's auditors, are independent public accountants as required by the Act and the rules and regulations of the Commission thereunder; (w) Neither the Company nor any of its Significant Subsidiaries is in violation of its Articles of Association or Bye-laws or in default in the performance or observance of any material obligation, covenant or condition contained in any indentures, mortgage, deed of trust, loan agreement, lease or other agreement or instrument to which it is a party or by which it or any of its properties may be bound, except for such defaults which would not result in a Material Adverse Effect; and (x) No stamp or other issuance or transfer taxes or duties and no capital gains, income, withholding or other taxes are payable by or on behalf of the Purchaser to the Cayman Islands or any political subdivision or taxing authority thereof or therein in connection with (A) the issuance, sale and delivery by the Company to or for the respective accounts of the Purchaser of the Securities or (B) the sale or delivery outside the Cayman Islands by the Purchaser of the Securities to the initial purchasers thereof, other than as described in the opinion of Hunter & Hunter delivered pursuant to Section 7(c) of this Agreement. 2. Subject to the terms and conditions herein set forth, (a) the Company agrees to issue and sell to the Purchaser, and the Purchaser agrees to purchase from the Company, the Firm Securities at a purchase price of 55.23 % of the initial amount of the Securities and (b) in the event and to the extent that the Purchaser shall exercise the election to purchase Optional Securities as provided below, the Company agrees to issue and sell to the Purchaser, and the Purchaser agrees to purchase from the Company, at the same purchase price set forth in clause (a) of this Section 2 plus accrued original issue discount to the Second Time of Delivery (as defined below) , that portion of the aggregate principal amount at maturity of the Optional Securities as to which such election shall have been exercised. The Company hereby grants to the Purchaser the right to purchase at its election up to $66,371,000 aggregate principal amount at maturity of Optional Securities, at the purchase price set forth in clause (b) of the first paragraph of this Section 2. Any such election to purchase Optional Securities may be exercised by written notice from you to the Company, given within a period of 30 calendar days after the date of this Agreement, setting forth the aggregate principal amount of Optional Securities to be purchased and the date on which such Optional Securities are to be delivered, as determined by you but in no event earlier than the First Time of Delivery (as defined in Section (4) hereof) or, unless you and the Company otherwise agree in writing, earlier than two or later than ten business days after the date of such notice. No Optional 7 Securities shall be sold or delivered unless the Firm Securities previously have been, or simultaneously are, sold and delivered. 3. Upon the authorization by you of the release of the Securities, the Purchaser proposes to offer the Securities for sale upon the terms and conditions set forth in this Agreement and the Offering Memorandum and the Purchaser hereby represents and warrants to, and agrees with the Company that: (a) It will offer and sell the Securities only to persons who it reasonably believes are "qualified institutional buyers" ("QIBs") within the meaning of Rule 144A under the Act in transactions meeting the requirements of Rule 144A; (b) It has not and will not offer or sell the Securities by any form of general solicitation or general advertising, including but not limited to the methods described in Rule 502(c) under the Act. (c) The Securities to be purchased by the Purchaser hereunder, in book-entry form, will be represented by permanent global certificates and shall be delivered by or on behalf of the Company to the Purchaser, through the facilities of The Depository Trust Company ("DTC"), for the account of the Purchaser, against payment by or on behalf of the Purchaser of the purchase price therefor by wire transfer to the Company of federal (same day) funds, by causing DTC to credit the Securities to the account of the Purchaser. The Company will cause the global certificates representing the Firm Securities to be made available for checking and packaging at least twelve hours prior to the Time of Delivery (as defined below) at the office of Skadden, Arps, Slate, Meagher & Flom LLP, Four Times Square, New York, New York 10036 (the "Closing Location"). The time and date for the delivery and payment of the Firm Securities shall be 9:30 a.m., New York City time, on September 7, 2001 or such other time and date as Merrill Lynch and the Company may agree upon in writing, and, with respect to the Optional Securities, 9:30 a.m., New York City time, on the date specified by Merrill Lynch of its election to purchase such Optional Securities, or such other time and date as Merrill Lynch and the Company may agree upon in writing. Such time and date of delivery of the Firm Securities herein called the "First Time of Delivery," such time and date of delivery of the Optional Securities, if not the First Time of Delivery, is herein called the "Second Time of Delivery," and each such time and date of delivery is herein called the "Time of Delivery." (d) The documents to be delivered at the Time of Delivery by or on behalf of the parties hereto pursuant to Section 7 hereof, including the cross-receipt for the Securities and any additional documents requested by the Purchaser pursuant to Section 7(m) hereof, will be delivered at such time and date at the offices of Skadden, Arps, Slate, Meagher & Flom LLP, Four Times Square, New York, New York, 10036, and the Securities will be delivered at the Designated Office, all at the Time of Delivery. A meeting will be held at the Closing Location at 3:00 p.m., New York City time, on the New York Business Day next preceding the Time of Delivery, at which meeting the final drafts of the documents to be delivered pursuant to the 8 preceding sentence will be available for review by the parties hereto. For the purposes of this Section 4, "New York Business Day" shall mean each Monday, Tuesday, Wednesday, Thursday and Friday which is not a day on which banking institutions in New York are generally authorized or obligated by law or executive order to close. 4. The Company agrees with the Purchaser: (a) To prepare the Offering Memorandum in a form approved by you; to make no amendment or any supplement to the Offering Memorandum which shall be disapproved by you promptly after reasonable notice thereof, unless such amendment or supplement is legally necessary as advised by outside counsel to the Company; and to furnish you with a reasonable number of copies thereof; (b) Promptly from time to time to take such action as you may reasonably request to qualify the Securities, and the Shares issuable upon conversion of the Securities for offering and sale under the securities laws of such jurisdictions as you may reasonably request and to comply with such laws so as to permit the continuance of sales and dealings therein in such jurisdictions for as long as may be necessary to complete the distribution of the Securities, provided that in connection therewith the Company shall not be required to qualify as a foreign corporation or to file a general consent to service of process in any jurisdiction; (c) To furnish the Purchaser with copies of the Offering Memorandum and each amendment or supplement thereto and additional written and electronic copies thereof in such quantities as you may from time to time reasonably request, and if, at any time prior to the expiration of nine months after the date of the Offering Memorandum, any event shall have occurred as a result of which the Offering Memorandum as then amended or supplemented would include an untrue statement of a material fact or omit to state any material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made when such Offering Memorandum is delivered, not misleading, or, if for any other reason it shall be necessary or desirable during such same period to amend or supplement the Offering Memorandum, to notify you and upon your request to prepare and furnish without charge to the Purchaser and to any dealer in securities as many written and electronic copies as you may from time to time reasonably request of an amended Offering Memorandum or a supplement to the Offering Memorandum which will correct such statement or omission or effect such compliance; (d) During the period beginning from the date hereof and continuing until the date 90 days after the First Time of Delivery, not to offer, sell, contract to sell or otherwise dispose of, except as provided hereunder any securities of the Company that are substantially similar to the Securities or any Shares, including but not limited to any securities that are convertible into or exchangeable for, or that represent the right to receive, Shares or any such substantially similar securities (other than pursuant to stock option or other similar plans existing on, or upon the conversion or exchange of convertible or exchangeable securities outstanding as of, the date of 9 this Agreement or pursuant to this Agreement or upon conversion of the LYONs), without your prior written consent; (e) Not to be or become, at any time prior to the expiration of two years after the Time of Delivery, an open-end investment company, unit investment trust, closed-end investment company or face-amount certificate company that is or is required to be registered under Section 8 of the Investment Company Act; (f) At any time prior to the expiration of two years after the Time of Delivery, when the Company is not subject to Section 13 or 15(d) of the Exchange Act, the Company will furnish at its expense, upon request, to holders of Securities and prospective purchasers of Securities information (the "Additional Issuer Information") satisfying the requirements of subsection (d)(4)(i) of Rule 144A under the Act; (g) To use its best efforts to cause the LYONs to be eligible for the PORTAL trading system of the National Association of Securities Dealers, Inc.; (h) Prior to the expiration of two years after the First Time of Delivery, to furnish to the holders of the Securities as soon as practicable after the end of each fiscal year an annual report (including a balance sheet and statements of income, stockholders' equity and cash flows of the Company and its consolidated subsidiaries certified by independent public accountants) and, as soon as practicable after the end of each of the first three quarters of each fiscal year (beginning with the fiscal quarter ending after the date of the Offering Memorandum), to make available to its securityholders consolidated summary financial information of the Company and its consolidated subsidiaries for such quarter in reasonable detail, except, in each case, to the extent such reports or information are publicly available or the deadline for submission of such reports or information to the Commission has not yet occurred; (i) During a period of three years from the date of the Offering Memorandum, to furnish to you copies of all reports or other communications (financial or other) furnished to stockholders of the Company, and to deliver to you (i) as soon as they are available, copies of any reports and financial statements furnished to or filed with the Commission or any securities exchange on which the Securities or any class of securities of the Company is listed (such financial statements to be on a consolidated basis to the extent the accounts of the Company and its Subsidiaries are consolidated in reports furnished to its stockholders generally or to the Commission); and (ii) such additional information concerning the business and financial condition of the Company as you may from time to time reasonably request, except, in each case, such information that the Company determines, in its discretion, constitutes material non-public information (such financial statements to be on a consolidated basis to the extent the accounts of the Company and its Subsidiaries are consolidated in reports furnished to its stockholders generally or to the Commission), except, in each case, to the extent such reports, communications, statements or other information are publicly available or the deadline of such reports or information to the Commission has not yet occurred; 10 (j) During the period of two years after the First Time of Delivery, the Company will not, and will not permit any of its "affiliates" (as defined in Rule 144 under the Securities Act) to, resell any of the Securities which constitute "restricted securities" under Rule 144 that have been reacquired by any of them; (k) Not to use the net proceeds received by the Company from the sale of the Securities pursuant to this Agreement, other than in the manner specified in the Offering Memorandum under the caption "Use of Proceeds;" and (l) To reserve and keep available at all times, free of preemptive rights, Shares for the purpose of enabling the Company to satisfy any obligations to issue Shares upon conversion of the Securities. 5. The Company covenants and agrees with the Purchaser that the Company will pay or cause to be paid the following: (i) the fees, disbursements and expenses of the Company's counsel and accountants in connection with the issue of the Securities and the Shares issuable upon conversion of the Securities and all other expenses of the Company in connection with the preparation, printing and filing of the Offering Memorandum and any amendments and supplements thereto and the mailing and delivering of copies thereof to the Purchaser and dealers; (ii) the cost of printing or producing the Indenture and closing documents (including any compilations thereof); (iii) all expenses in connection with the qualification of the Securities and the Shares issuable upon conversion of the Securities for offering and sale under state securities laws as provided in Section 5(b) hereof, including the fees and disbursements of counsel for the Purchaser in connection with such qualification and in connection with the Blue Sky and legal investment surveys; (iv) any fees charged by any securities rating service for rating the Securities; (v) the cost of preparing the Securities; (vi) the fees and expenses of the Trustee and any agent of the Trustee and the fees and disbursements of counsel for the Trustee in connection with the Indenture and the Securities; (vii) any cost incurred in connection with the designation of the Securities for trading in PORTAL and the listing of Ordinary Shares issuable upon conversion of the Securities; (viii) all expenses and taxes arising as a result of the issuance, sale and delivery of the Securities, of the sale and delivery outside of the Cayman Islands of the Securities by the Purchaser to the initial purchasers thereof in the manner contemplated under the Purchase Agreement, including, in any such case, any Cayman Islands income, capital gains, withholding, transfer or other tax asserted against the Purchaser by reason of the purchase and sale of the Securities pursuant to the Purchase Agreement; and (ix) all other costs and expenses incident to the performance of the Company's obligations hereunder which are not otherwise specifically provided for in this Section. It is understood, however, that, except as provided in this Section, and Sections 8 and 11 hereof, the Purchaser will pay all of their own costs and expenses, including the fees of their counsel, transfer taxes on resale of any of the Securities by them, and any advertising expenses connected with any offers they may make. 11 6. The obligations of the Purchaser hereunder shall be subject, in its discretion, to the condition that all representations and warranties and other statements of the Company herein are, at and as of the Time of Delivery, true and correct, the condition that the Company shall have performed all of its obligations hereunder theretofore to be performed, and the following additional conditions: (a) Skadden, Arps, Slate, Meagher & Flom LLP, counsel for the Purchaser, shall have furnished to the Purchaser their written opinion, dated the Time of Delivery, in form and substance reasonably satisfactory to you, and such counsel shall have received such papers and information as they may reasonably request to enable them to pass upon such matters; (b) Cahill Gordon & Reindel, counsel for the Company, shall have furnished to you their written opinion, dated the Time of Delivery, in form and substance reasonably satisfactory to you; (c) Hunter & Hunter, counsel for the Company, shall have furnished to you their written opinion, dated the Time of Delivery, in form and substance reasonably satisfactory to you; (d) Paul S. Giordano, Executive Vice President and General Counsel to the Company, shall have furnished to you his written opinion, dated the Time of Delivery, in form and substance reasonably satisfactory to you; (e) On the date of the Offering Memorandum prior to the execution of this Agreement and also at the Time of Delivery, PricewaterhouseCoopers LLP shall have furnished to you a letter or letters, dated the respective dates of delivery thereof, in form and substance reasonably satisfactory to you; (f) (i) Neither the Company nor any of its Significant Subsidiaries shall have sustained since the date of the latest audited financial statements included in the Offering Memorandum any loss or interference with its business from fire, explosion, flood or other calamity, whether or not covered by insurance, or from any labor dispute or court or governmental action, order or decree, otherwise than as set forth or contemplated in the Offering Memorandum, and (ii) since the respective dates as of which information is given in the Offering Memorandum there shall not have been any change in the capital stock (other than changes resulting from the exercise of stock options or the conversion of warrants or capital stock which were outstanding as of such date, or from the exercise of options granted after such date in the ordinary course of business or from repurchases of capital stock) or long_term debt of the Company or any of its Significant Subsidiaries or any change, or any development involving a prospective change, in or affecting the general affairs, management, financial position, stockholders' equity or results of operations of the Company and its Significant Subsidiaries, taken as a whole, otherwise than as set forth or contemplated in the Offering Memorandum, the effect of which, in any such case described in clause (i) or (ii), is in the judgment of Merrill Lynch so 12 material and adverse as to make it impracticable or inadvisable to proceed with the offering or the delivery of the Securities on the terms and in the manner contemplated in this Agreement and in the Offering Memorandum; (g) On or after the date hereof (i) no downgrading shall have occurred in the rating accorded the Company's debt securities or the Company's financial strength or claims paying ability by any "nationally recognized statistical rating organization", as that term is defined by the Commission for purposes of Rule 436(g)(2) under the Act, and (ii) no such organization shall have publicly announced that it has under surveillance or review, with possible negative implications, its rating of any of the Company's debt securities or the Company's financial strength or claims paying ability; (h) On or after the date hereof there shall not have occurred any of the following: (i) a suspension or material limitation in trading in securities generally on the New York Stock Exchange (the "Exchange"); (ii) a suspension or material limitation in trading in the Company's securities on the New York Stock Exchange; (iii) a general moratorium on commercial banking activities declared by either Federal or New York State authorities; (iv) the outbreak or escalation of hostilities involving the United States or the Cayman Islands or the declaration by the United States or the Cayman Islands of a national emergency or war, if the effect of any such event specified in this clause (iv) in the judgment of Merrill Lynch makes it impracticable or inadvisable to proceed with the public offering or the delivery of the Securities on the terms and in the manner contemplated in the Offering Memorandum; (v) a change or development involving a prospective change in the Cayman Islands taxation affecting the Company, the Securities or the transfer thereof or the imposition of exchange controls by the United States or the Cayman Islands; or (vi) the occurrence of any material adverse change in the existing financial, political or economic conditions in the United States or elsewhere which, in the judgment of Merrill Lynch, would materially and adversely affect the financial markets or the markets for the Securities or other debt securities or any other equity securities; (i) The Company shall have furnished or caused to be furnished to you at the Time of Delivery certificates of officers of the Company satisfactory to you as to the accuracy of the representations and warranties of the Company herein at and as of such Time of Delivery, as to the performance by the Company of all of its obligations hereunder to be performed at or prior to such Time of Delivery, as to the matters set forth in subsections (f) and (g) of this Section and as to such other matters as you may reasonably request; (j) The Purchaser shall have received letters, dated the First Time of Delivery, from Michael Esposito, Jr. and Brian O'Hara whereby each such person agrees, for the period commencing on the date of the Time of Delivery and ending 60 days after the date of the Offering Memorandum, not to offer, sell, contract to sell, pledge or otherwise dispose of, directly or indirectly, any Shares or other securities convertible into or exchangeable or exercisable for any Shares, or publicly disclose the intention to make any such offer, sale, pledge or disposal (1) other than no more than 10% of the Shares held by each such person on the date of such letters 13 and other than as bona fide gift or gifts, provided that the donee or donees thereof agree to be bound by such letters or (2) without the prior written consent of the Purchaser; (k) The Indenture shall have been duly executed and delivered by the Company and the LYONs shall have been duly executed and delivered by the Company and duly authenticated by the Trustee in accordance with the Indenture; (l) The Company shall have executed and delivered to the Purchaser the Registration Rights Agreement; and (m) The Company shall have furnished to the Purchaser such further information, certificates and documents as the Purchaser may reasonably request to evidence compliance with the conditions set forth in this Section 7. (d) The Company will indemnify and hold harmless the Purchaser against any losses, claims, damages or liabilities to which the Purchaser may become subject, under the Act or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon an untrue statement or alleged untrue statement of a material fact contained in the Offering Memorandum, or any amendment or supplement thereto, or arise out of or are based upon the omission or alleged omission to state therein a material fact necessary to make the statements therein not misleading, and will reimburse the Purchaser for any expenses reasonably incurred by the Purchaser in connection with investigating or defending any such action or claim as such expenses are incurred, including the reasonable fees and expenses of one counsel (in addition to any applicable local counsel); provided, however, that the Company shall not be liable in any such case to the extent that any such loss, claim, damage or liability arises out of or is based upon an untrue statement or alleged untrue statement or omission or alleged omission made in the Offering Memorandum or any such amendment or supplement in reliance upon and in conformity with written information furnished to the Company by the Purchaser expressly for use therein. (e) The Purchaser will indemnify and hold harmless the Company against any losses, claims, damages or liabilities to which the Company may become subject, under the Act or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon an untrue statement or alleged untrue statement of a material fact contained in the Offering Memorandum, or any amendment or supplement thereto, or arise out of or are based upon the omission or alleged omission to state therein a material fact or necessary to make the statements therein not misleading, in each case to the extent, but only to the extent, that such untrue statement or alleged untrue statement or omission or alleged omission was made in the Offering Memorandum or any such amendment or supplement in reliance upon and in conformity with written information furnished to the Company by the Purchaser expressly for use therein; and will reimburse the Company for any legal or other expenses reasonably incurred by the Company in connection with investigating or defending any such action or claim as such 14 expenses are incurred, including the reasonable fees and expenses of one counsel (in addition to any applicable local counsel). (f) Promptly after receipt by an indemnified party under subsection (a) or (b) above of notice of the commencement of any action, such indemnified party shall, if a claim in respect thereof is to be made against the indemnifying party under such subsection, notify the indemnifying party in writing of the commencement thereof; but the omission so to notify the indemnifying party shall not relieve it from any liability which it may have to any indemnified party otherwise than under such subsection. In case any such action shall be brought against any indemnified party and it shall notify the indemnifying party of the commencement thereof, the indemnifying party shall be entitled to participate therein and, to the extent that it shall wish, jointly with any other indemnifying party similarly notified, to assume the defense thereof, with counsel satisfactory to such indemnified party (who shall not, except with the consent of the indemnified party, be counsel to the indemnifying party), and, after notice from the indemnifying party to such indemnified party of its election so to assume the defense thereof, the indemnifying party shall not be liable to such indemnified party under such subsection for any legal expenses of other counsel or any other expenses, in each case subsequently incurred by such indemnified party, in connection with the defense thereof other than reasonable costs of investigation. No indemnifying party shall, without the written consent of the indemnified party, effect the settlement or compromise of, or consent to the entry of any judgment with respect to, any pending or threatened action or claim in respect of which indemnification or contribution may be sought hereunder (whether or not the indemnified party is an actual or potential party to such action or claim) unless such settlement, compromise or judgment (i) includes an unconditional release of the indemnified party from all liability arising out of such action or claim and (ii) does not include a statement as to, or an admission of, fault, culpability or a failure to act, by or on behalf of any indemnified party. (g) If the indemnification provided for in this Section 8 is unavailable to or insufficient to hold harmless an indemnified party under subsection (a) or (b) above in respect of any losses, claims, damages or liabilities (or actions in respect thereof) referred to therein, then each indemnifying party shall contribute to the amount paid or payable by such indemnified party as a result of such losses, claims, damages or liabilities (or actions in respect thereof) in such proportion as is appropriate to reflect the relative benefits received by the Company on the one hand and the Purchaser on the other from the offering of the Securities. If, however, the allocation provided by the immediately preceding sentence is not permitted by applicable law or if the indemnified party failed to give the notice required under subsection (c) above, then each indemnifying party shall contribute to such amount paid or payable by such indemnified party in such proportion as is appropriate to reflect not only such relative benefits but also the relative fault of the Company on the one hand and the Purchaser on the other in connection with the statements or omissions which resulted in such losses, claims, damages or liabilities (or actions in respect thereof), as well as any other relevant equitable considerations. The relative benefits received by the Company on the one hand and the Purchaser on the other shall be deemed to be in the same proportion as the total net proceeds from the offering (before deducting expenses) 15 received by the Company bear to the total underwriting discounts and commissions received by the Purchaser, in each case as set forth in the Offering Memorandum. The relative fault shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the Company on the one hand or the Purchaser on the other and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. The Company and the Purchaser agree that it would not be just and equitable if contribution pursuant to this subsection (d) were determined by pro rata allocation or by any other method of allocation which does not take account of the equitable considerations referred to above in this subsection (d). The amount paid or payable by an indemnified party as a result of the losses, claims, damages or liabilities (or actions in respect thereof) referred to above in this subsection (d) shall be deemed to include any legal or other expenses reasonably incurred by such indemnified party in connection with investigating or defending any such action or claim. Notwithstanding the provisions of this subsection (d), the Purchaser shall not be required to contribute any amount in excess of the amount by which the total price at which the Securities underwritten by it and distributed to investors were offered to investors exceeds the amount of any damages which the Purchaser has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission. No person guilty of fraudulent misrepresentation (within the meaning of Section 11 of the Act) shall be entitled to contribution from any person not guilty of such fraudulent misrepresentation. (h) The obligations of the Company under this Section 8 shall be in addition to any liability which the Company may otherwise have and shall extend, upon the same terms and conditions, to each person, if any, who controls the Purchaser within the meaning of the Act; and the obligations of the Purchaser under this Section 8 shall be in addition to any liability which the respective Purchaser may otherwise have and shall extend, upon the same terms and conditions, to each officer and director of the Company and to each person, if any, who controls the Company within the meaning of the Act. 7. The respective indemnities, agreements, representations, warranties and other statements of the Company and the Purchaser, as set forth in this Agreement or made by or on behalf of them, respectively, pursuant to this Agreement, shall remain in full force and effect, regardless of any investigation (or any statement as to the results thereof) made by or on behalf of the Purchaser or any controlling person of the Purchaser, or the Company, or any officer or director or controlling person of the Company, and shall survive delivery of and payment for the Securities. 8. If the Securities are not delivered by or on behalf of the Company as provided herein, the Company will reimburse the Purchaser through you for all out_of_pocket expenses approved in writing by you, including the reasonable fees and disbursements of counsel, incurred by the Purchaser in making preparations for the purchase, sale and delivery of the Securities, but the Company shall then be under no further liability to the Purchaser except as provided in Sections 6 and 8 hereof. 16 9. All statements, requests, notices and agreements hereunder shall be in writing, and if to the Purchaser shall be delivered or sent by mail, telex or facsimile transmission to Merrill Lynch & Co. at North Tower, World Financial Center, New York, New York 10281, Attention: Michael Voltaggio, Equity Capital Markets Syndicate (telecopier no. 212-738 1069); and if to the Company shall be delivered or sent by mail, telex or facsimile transmission to the address of the Company set forth in the Offering Memorandum, Attention: Secretary; provided, however, that any notice to the Purchaser pursuant to Section 8(c) hereof shall be delivered or sent by mail, telex or facsimile transmission to the Purchaser at its address set forth in its Purchaser's Questionnaire, or telex constituting such Questionnaire, which address will be supplied to the Company by you upon request. Any such statements, requests, notices or agreements shall take effect upon receipt thereof. 10. This Agreement shall be binding upon, and inure solely to the benefit of, the Purchaser, the Company and, to the extent provided in Sections 8 hereof, the officers and directors of the Company and each person who controls the Company or the Purchaser, and their respective heirs, executors, administrators, successors and assigns, and no other person shall acquire or have any right under or by virtue of this Agreement. No purchaser of any of the Securities from the Purchaser shall be deemed a successor or assign by reason merely of such purchase. 11. The Company irrevocably (i) agrees that any legal suit, action or proceeding against the Company brought by the Purchaser or by any person who controls the Purchaser arising out of or based upon this Agreement or the transactions contemplated hereby may be instituted in the federal district court for the Southern District of New York and the New York County Court, (ii) waives, to the fullest extent it may effectively do so, any objection which it may now or hereafter have to the laying of venue of any such proceeding and (iii) submits to the exclusive jurisdiction of such courts in any such suit, action or proceeding. The Company has appointed CT Corporation, New York, New York, as its authorized agent (the "Authorized Agent") upon whom process may be served in any such action arising out of or based on this Agreement or the transactions contemplated hereby which may be instituted in the federal district court for the Southern District of New York and the New York County Court by the Purchaser or by any person who controls the Purchaser, expressly consents to the jurisdiction of any such court in respect of any such action, and waives any other requirements of or objections to personal jurisdiction with respect thereto. Such appointment shall be irrevocable. The Company represents and warrants that the Authorized Agent has agreed to act as such agent for service of process and agrees to take any and all action, including the filing of any and all documents and instruments, that may be necessary to continue such appointment in full force and effect as aforesaid. Service of process upon the Authorized Agent and written notice of such service to the Company shall be deemed, in every respect, effective service of process upon the Company. 12. In respect of any judgment or order given or made for any amount due hereunder that is expressed and paid in a currency (the "judgment currency") other than United States dollars, the Company will indemnify the Purchaser against any loss incurred by the Purchaser as 17 a result of any variation as between (i) the rate of exchange at which the United States dollar amount is converted into the judgment currency for the purpose of such judgment or order and (ii) the rate of exchange at which the Purchaser is able to purchase United States dollars with the amount of judgment currency actually received by the Purchaser. The foregoing indemnity shall constitute a separate and independent obligation of the Company and shall continue in full force and effect notwithstanding any such judgment or order as aforesaid. The term "rate of exchange" shall include any premiums and costs of exchange payable in connection with the purchase of or conversion into United States dollars. 13. Time shall be of the essence of this Agreement. 14. This Agreement shall be governed by and construed in accordance with the laws of the State of New York. 15. This Agreement may be executed by any one or more of the parties hereto in any number of counterparts, each of which shall be deemed to be an original, but all such respective counterparts shall together constitute one and the same instrument. 18 If the foregoing is in accordance with your understanding, please sign and return to us one for the Company and the Purchaser plus one for each counsel counterparts hereof, and upon the acceptance hereof by you, on behalf of the Purchaser, this letter and such acceptance hereof shall constitute a binding agreement between the Purchaser and the Company. Very truly yours, XL Capital Ltd By: ----------------------------------------------- Name: Title: Accepted as of the date hereof: MERRILL LYNCH & CO. Merrill Lynch, Pierce, Fenner & Smith Incorporated By: ------------------------------------------------ Name: Title: 19